Crude Trims Weekly Gains, Natural Gas Surges

Edited by Vani Rao

New EPA norms unfavorable for coal-fired power stations

Crude Oil

The WTI crude edged lower by 0.05%, or 5 cents a barrel, during the week ended Friday, June 6, 2014. The light, sweet crude traded between gains and losses amid mixed US economic data during the week.

Source: Bloomberg
Source: Bloomberg

On Friday, June 6, 2014, US crude oil prices improved 18 cents, or 0.18%, to end the week at $102.66 a barrel. During the first half of the week, the WTI rose after positive economic indicators that hinted at a healthy US economic recovery.

On Tuesday, June 3, 2014, the US Bureau of Economic Analysis announced that motor vehicle sales for May 2014 rose 4.4% to 16.8 million units, above the Bloomberg estimates of 16.3 million units. In another major economic data release, the US Department of Commerce reported that new orders for US factory goods for April 2014 rose 0.7%, above the Bloomberg analysts’ consensus of 0.5%.

On Wednesday, June 4, 2014, the New York Mercantile Exchange-traded crude rose to a weekly high of $103.58, after the Energy Information Administration (EIA) reported that crude oil inventories fell by 3.4 million barrels to 389.5 million barrels for week ended May 30, 2014.

During the second half of the week, US standard WTI crude shed some gains as some of the economic data releases could not match market expectations. On Friday, the US Department of Labor said that the total non-farm payroll jobs for May improved by 217,000, against a high of 282,000 in April 2014 and marginally above the Bloomberg consensus estimate increase of 215,000.

In another major economic data release, the US Department of Labor reported that first-time jobless claims for the week ended May 31, 2014, has risen by 8,000 to 312,000, the lowest growth since May 2007, and above the consensus estimates of 310,00. Initial jobless claims had fallen by 27,000 to 300,000 in the week ended May 24.

In the week ahead, all eyes will be on Wednesday’s Treasury Budget by the US Department of Treasury, followed by jobless claims and retail sales data on Thursday. On Friday, Reuters and the University of Michigan will announce the US consumer sentiment index for June. Meanwhile, a refinancing rate cut to a record low of 0.15% in the Eurozone by the European Central Bank is like to impose a bullish pressure on crude prices.

On Friday, June 6, 2014, the European Standard Brent crude fell 0.17%, or 18 cents a barrel, to end the week at $108.61 a barrel. The ICE Futures Exchange-traded crude lost 0.57%, or 62 cents a barrel, during the week. The spread between the Brent and WTI crude narrowed to $5.95 a barrel.

Source: Bloomberg
Source: Bloomberg

The WTI and Brent crude were last trading at $104.40 and $110.63 a barrel, respectively, at the time of reporting.

Natural Gas

US natural gas prices for July delivery rose 3.70%, or 16.8 cents per million British Thermal Units (BTU), to settle the week at a four-week high of $4.710 per million BTU as US braces for warmer-than-expected climate.

Source: Bloomberg
Source: Bloomberg

On Friday, June 6, 2014, natural gas prices rose 0.19%, or 0.9 cents per BTU. During the week, natural gas prices gained as the US Environmental Protection Agency (EPA) proposed new carbon dioxide emissions norms for US power plants. As per the new norms, greenhouse gas emissions from US power plants have to be reduced by 30% by 2030. The new norms will prove to be taxing for coal-fueled power plants as they will find it difficult to comply with these new norms.

In a bid to reduce the greenhouse gas emissions, the US power plants are transitioning from traditional coal-fired power plants to natural gas-fired power stations. Thus, the new EPA guidelines are expected to boost the demand of natural gas, while exerting an upward pressure on gas prices.

The strong bullish signal subdued Thursday’s bearish EIA natural gas inventory report. The agency reported that the US natural gas stockpiles for the week ended May 31, 2014 increased by 119 billion cubic feet to a total of 1.499 trillion cubic feet for the week ended May 23, 2014, slightly above the Bloomberg analysts forecast of a rise of 116 billion cubic feet.

In the long run, natural gas prices are set to rise further as the US is witnessing warmer-than- expected climate, spurring the demand for electricity for air conditioning purposes. The updated weather forecasting models expects above-normal temperature across the US in the upcoming weeks.

US Natural Gas was last trading at $4.390 per million BTU at the time of reporting.

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